Tax time will soon be upon us. Buy Here – Pay Here dealers look forward to this time of the year because many dealers make a high percentage of their annual sales during this period. One dealer I read about claimed to make 80% of his sales during this quarter. That seems a too high to me and I would argue his marketing and sales efforts during the rest of the year need to be reviewed but it is not unusual for a dealer to have 40% – 50% of his sales for the year during the 1st quarter.
BHPH customers often have substantial tax refunds due them because of the Earned Income Credit and for other reasons and they traditionally file as soon as they can to get their refunds quickly. Often they will use those refunds as down payment to finance a vehicle.
While this boost in sales is a good thing and, in fact, allows many dealers to stay in business, there are dangers associated with large tax time down payments. A large down payment does not make a prospective customer a better risk. The customer and the customer’s down payment are two different things. The customer should be evaluated on his ability to pay, just like you do the rest of the year. Your underwriting should not change just because a customer has a larger down payment available.
When deciding whether or not to approve a customer for financing, the following points must be considered:
- The customer has the means to pay. A complete budget should be done for all of the household bills using the income from only those people on the application.
- The customer is a stable person. The customer has not been moving all around the area or even the country and/or changing jobs every few months.
- The customer has been completely truthful. If a customer has willfully withheld pertinent information, despite all your prompts not to, the manager must take it into account when making the credit decision. If he is lying before he even gets the vehicle, what is he going to do when it comes to collection time?
- The customer is going to be the driver of the vehicle. There should be no straw purchases. The person who is driving the vehicle has a vested interest in ensuring that the note gets paid.
- The vehicle can be retrieved if necessary. Based on all the information collected, the dealership should be reasonably sure about where the vehicle is during the day and where it is parked at night.
- There are good feelings about doing business with the customer. The manager should never discount his “gut feeling” about a customer. More often than not, it is a very accurate barometer on whether or not the customer will pay in the future.
- The responses fit reasonably within the dealership’s guidelines.
Take advantage of the sales opportunities the tax season provides Buy Here – Pay Here dealers. Your goal should always be to help worthy customers obtain financing so they can purchase a vehicle from you. Just don’t let a large down payment blind you to other issues they may make turning down an applicant the right decision. Your collectors will thank you in the long run.